Asian Nations Seek to Reduce Oil Purchases From Iran
Under growing pressure from the United States, some of Asia’s largest economies are reluctantly looking for options to reduce the amount of oil they buy from Iran, a move that would further tighten the economic vise on an increasingly defiant nation that announced plans for a new round of naval drills in the Strait of Hormuz.
The decision by South Korea and Japan to try to accommodate Washington’s demands follows reports that China has already reduced its purchase of Iranian crude in the past month in a pricing dispute with Tehran.
Whatever the motives, the combined loss of sales threatens an economy already reeling, where the currency has plummeted in value, inflation has surged and the general public has expressed growing anxiety about the prospect of war.
China, Japan, India and South Korea together import more than 60 percent of Iranian oil exports, and they all depend on Iran and other Persian Gulf producers for the preponderance of their oil and natural gas needs.
As tensions in the gulf have escalated and alarmed Asian governments and businesses, companies and traders from those countries have been putting out feelers to places like Russia, Vietnam, West Africa, Iraq and especially Saudi Arabia to export more oil to them, according to oil experts.
For Tehran, which relies heavily on oil revenues to prop up an economy battered by years of sanctions, the potential cutbacks by its Asian customers follow a decision by the European Union to move toward a ban on the import of Iranian oil.
Taken together, the Western efforts represent the most serious economic pressure yet on Iran after years of conflict over a nuclear program that the West charges is aimed at building weapons.
But if the goal is to force Iran to relent, the campaign has so far had an opposite effect: Iranian officials have equated targeting their oil market with economic war and threatened to block the Strait of Hormuz, where about one-fifth of the world’s oil passes to get to market.
The Iranian military, fresh off 10 days of naval exercises near the strait that ended this week, vowed to hold a new round of war games soon.
The defense minister, Brig.Gen.Ahmad Vahidi, in comments reported by the semiofficial Fars News Agency Thursday, said the military’s exercises would be “its greatest naval war games” and would occur “in the same region in the near future.” The United States, however, is keeping the pressure on.
Treasury Secretary Timothy F.Geithner is scheduled to visit Beijing and Tokyo next week, and the tightening sanctions on Iran will be high on his agenda.
United States officials said that Mr.Geithner will press China at least to resist importing more Iranian oil to replace exports that would otherwise go to Europe.
The trip is part of a concerted effort by Western diplomats to persuade Asian countries to go along with new European sanctions, American and European officials say.
“It’s a global chess game,” said Daniel Yergin, the energy historian. “The major buyers are prudently beginning to make alternative plans to reduce their reliance on Iranian oil.”
The Asian efforts to wean themselves from Iranian crude are in response to legislation enacted by Congress at the end of last year requiring the administration to phase in sanctions in stages by late June that would make it very difficult for others to buy Iranian oil, by barring transactions with Iran’s central bank.
The sanctions exempt food, medicine and other humanitarian trade and include a presidential waiver for any country or company in cases in which the impact would harm the national security interests of the United States.
More significantly, the legislation exempts from sanctions countries that “significantly reduce” imports from Iran.
The legislation does not define this term, leaving it to the administration, according to officials.
The debate over the definition, now under way, has given the administration some leverage to entice allies like Japan, South Korea and even China to make some reductions, thus intensifying pressure, without having to take the hit of cutting off imports all at once.
But Japan and South Korea have expressed some alarm at the demand that they reduce their reliance on Iranian oil, fearing that such a move could undermine their economies.
Japan, the second-largest buyer of Iranian oil, depends on Persian Gulf countries for four-fifths of its oil imports, which come through the Strait of Hormuz.
Osamu Fujimura, the chief cabinet secretary, announced on Friday that Japan had expressed concern to the United States about the dangers to the Japanese and global economy from limits on Iran’s oil exports.
Yasushi Kimura, the president of the JX Nippon Oil and Energy Corporation, Japan’s largest refiner, announced on Thursday that his company had opened talks with Saudi Arabiaand others, whom he did not name, about possible alternatives.
The South Korean government announced on Thursday that it was looking for ways to limit its imports of oil and oil products from Iran, but pointedly stopped short of suggesting that it could stop these imports altogether.
China, which imports about 11 percent of its oil from Iran, has actually reduced its daily purchases of Iranian crude, although estimates of the cutback range from as little as 15,000 barrels a day, or 3 percent of Chinese imports from Iran, to considerably more than that.
It was hard to know if Beijing was making a political statement or merely trying to buy the oil on better terms.
“The Chinese have definitely cut back on long-term contracts, but we don’t know exactly why,” said Andy Lipow, a Houston refining and trading analyst.
“They may feel they will be able to buy cheaper on short-term markets if Iran were to lose its European customers.” Saudi Arabia has repeatedly said it would increase production if needed to make up for any decline in exports from Iran, its longtime regional rival.
“Saudi Arabia and OPEC have always delivered what the market required,” said Sadad Ibrahim Al-Husseini, former head of exploration and production at Saudi Aramco, the Saudi state oil company.
“There is enough supply from other OPEC countries” to compensate for losses of Iranian supplies, he added.
Mr. Husseini stressed that Middle Eastern oil markets were not yet in crisis mode, noting that insurance rates on tankers had not yet gone up in part because a tightening of European sanctions is at least a month away and a blockade of the strait is considered unlikely.
“The market is still comfortable Iran cannot pull off its threats,” he said.
But oil analysts have warned that the international oil market remains tight, even with Libyan oil quickly coming back on line.
Any disruption in the Middle East would probably bring a sharp increase in prices, which would put the shaky world economic recovery at risk, they say.
A senior government official in the Persian Gulf said Arab countries in the region were not panicking about the latest Iranian threats, while at the same time, encouraging the United States “to take a firm stand.”
“The last thing we want is some kind of military intervention,” said the official, who was granted anonymity because he was not authorized to speak publicly for his government. “But it should be left on the table.”
The Chinese Foreign Ministry took a cautious position this week on Iran, reiterating China’s broad objection to all sanctions that have not been approved by the United Nations and expressing hope that no military action of any sort will take place.
“We hope to maintain peace and stability in the gulf region,” said Hong Lei, a Chinese Foreign Ministry spokesman, at a regularly scheduled news conference on Wednesday.
But China is worried about the flow of oil through the Strait of Hormuz, said Patrick Ho, the chief executive and secretary general of the China Energy Fund Committee, an influential group in Hong Kong and Beijing with links to the Chinese government.
“It is the lifeline as far as energy is concerned for China,” Mr. Ho said.